Should you invest in international funds?
In the latest episode of Investors' Hangout, Dhirendra Kumar tells why it is important to add international exposure to your portfolio and how you can do it
Jan 11, 2019
The case for international investing is very straight-forward. It is only a step further to what we have been saying for long - diversify and invest in quality companies. These are the two primary reasons which makes it compelling to invest a part of your money abroad. We keep emphasizing upon investing in multi-cap funds and spreading the investment across three to four fund managers for adequate diversification. Investing abroad is only an extension to it. Otherwise your job, which is the source of regular income, and your investments, which represent your accumulation, would be linked to just one single economy.
Also, when you choose to invest abroad, you get an opportunity to invest in some of the finest companies like Amazon, Google, Facebook, Microsoft and others. These companies are listed in the US but their revenue is generated across the globe, enhancing the diversification in your portfolio. There are some great companies in India too but we do not have such giant global leaders like the ones I mentioned. Besides this, by investing internationally you also gain on the depreciating rupee because of the interest rate differential in different economies. Interest rate differential is likely to prevail because we are a growth economy and the inflation rate is likely to remain higher.
It has become possible for an Indian retail investor to invest abroad only about a decade back. Every Indian citizen can invest up to $200,000 in foreign stocks. There are many low cost stock brokers which help you do it. But do it only if you have the time, inclination and the temperament to invest directly in stocks.
A simpler way is to invest in a mutual fund available in India which invests in stocks of companies listed abroad. There are many such mutual fund schemes. Some of them are narrower in their approach and would limit their investment to a particular sector like agriculture or to a region, say, Brazil. Avoid them, and instead look for the one with broader base or which invests in stocks of global leaders.
Then there are funds which invest in both Indian as well as foreign companies. Typically, they maintain a minimum of 65 per cent in Indian equities to retain the status of an equity fund and invest about one-third in such global leaders to add the international exposure and some of the finest companies to your portfolio.
Ideally, it is good to have an international exposure of around 10-20 per cent of the portfolio for someone who has been in equity for four to five years. Beginners may initially chose to avoid it, whereas more nuanced investors may even choose to invest up to 30-40 per cent of their portfolio.
Click here, to register for the forthcoming episode of Investors' Hangout and post your question for Dhirendra Kumar.